Fire & Flower Announces Third Quarter Fiscal 2022 Financial and Operational Results

/NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO UNITED STATES WIRE SERVICES/

Third Quarter Fiscal 2022 and Recent Highlights:

•  Consolidated revenue for the third quarter of fiscal 2022 of $43.8 million, an increase of 8% sequentially, compared to $40.7 million in the second quarter of 2022
  
•  Average annual sales per store increase of 15% from previous quarter and gross margin increase (from 24% to 27%) driven by our Spark Perkstm member pricing program and evolving merchandise strategy
  
• Adjusted EBITDA for the third quarter of 2022 was negative $2.8 million, an improvement of 53.4% from the prior quarter
  
•  Significant sequential growth of 55% in the Hifyretm digital business segment with revenue of $3.0 million, compared to $1.9 million in the second quarter of fiscal 2022
  
•  Improvement in year-over-year same stores sales, continuing the positive retail trend enabled by our Spark Perkstm member pricing program
  
• Entered into an $11 million loan agreement and potential amendments to the strategic agreement with Alimentation Couche-Tard including a $5 million private placement, subject to shareholder approval
  
• Agreement to acquire two retail cannabis stores from Alimentation Couche-Tard in Kingston, Ontario and the opening of a total of five Circle K co-located stores under license agreements
  
• Deployment of Hifyre technology in Denver, Colorado with the digital business segment recognizing additional software license revenue from this location

TORONTO, Dec. 13, 2022 /CNW/ - Fire & Flower Holdings Corp. ("Fire & Flower" or the "Company") (TSX: FAF) (OTCQX: FFLWF), today announced its financial and operational results for the fiscal 2022 third quarter ended October 29, 2022.

"I am excited to see that our team's hard work and focus on operations is demonstrating measurable operational and financial results at the end of the third quarter as well as in the recent weeks. The Company continues to be focused on driving the goal of positive Adjusted EBITDA and Free Cash Flow. We aim to accomplish our goal through a disciplined approach to driving topline revenue, gross profit dollars and reducing selling, general and administrative expenses," shared Stéphane Trudel, Chief Executive Officer of Fire & Flower.

"Our strategic relationship with Alimentation Couche-Tard has been strengthened through our recent license agreement for five additional co-located cannabis stores adjacent to high-traffic Circle K in the Greater Toronto market, expanding on the existing program in Western Canada. In addition, if approved by shareholders, Fire & Flower will benefit from favourable financing to execute on our plans for growth with a $5 million private placement, in addition to the non-dilutive $11 million loan that has been secured."

Consolidated Financial Highlights

Financial & Operational Highlights for the Third Quarter Fiscal 2022

• Revenue of $43.8 million for Q3 2022, representing an increase of 8% from $40.7 million in the previous quarter and a decrease of 3% from $45.4 million in the prior year comparative period. The quarter-over-quarter improvement was driven by growth in Retail and Digital segments sales offset by a moderate decrease in Wholesale & Logistics.
• Gross profit of $11.8 million (27% of revenue) for Q3 2022, compared to $9.7 million (24% of revenue) in the previous quarter and $15.7 million (35% of revenue) in the prior year comparative period. The sequential increase in gross profit dollars and margin percentage reflect our continued improvement in Retail operational and financial metrics and improvements in the Hifyre digital platform during the current fiscal quarter.
• Adjusted EBITDA of negative $2.8 million for Q3 fiscal 2022 represents a $3.2 million improvement from Q2, contributed by higher consolidated gross profit and lower SG&A expenses in the current quarter.
• Net loss of $28.1 million for Q3 2022 compared to a net loss of $21.6 million in Q2 2022 and $2.0 million in the prior year comparative period.
• Cash and cash equivalents balance of $17.3 million and positive net working capital of $12.5 million as at October 29, 2022.

Segment Revenue

Segment Adjusted EBITDA 

Retail

• Retail revenue for Q3 2022 decreased 2% to $33.0 million from $33.7 million in the prior year comparative period. Retail revenue grew $2.6 million (9%) quarter-over-quarter contributed by the Spark Perkstm Member Pricing program, despite a net reduction of two stores in Q3 2022.
• Same-store sales continue to improve quarter-over-quarter and, at negative 4%, represent a significant improvement from year-over-year decreases of 26% and 14% for Q1 and Q2 fiscal 2022, respectively. The new Spark Perks Member Pricing program, which was launched in mid-May 2022, drove increased traffic to stores, resulting in an increase of 15% in average annualized sales per store compared to Q2 2022.
• Retail gross profit for Q3 2022 was $8.0 million (24.3% of revenue) compared to $10.2 million (30.3% of revenue) for the prior year comparative period. The year-over-year decline reflects the investment in launching the new Spark Perk member pricing program in Q2 2022. Gross profit increased $1.0 million (13%) quarter-over-quarter from $7.1 million as a result of increased retail revenue from the Spark Perkstm membership program and improved inventory optimization. The Retail segment continues to show improvement in both gross profit dollars and margin percentage subsequent to quarter end, driven by an increased number of transactions and units sold per store.
• Adjusted EBITDA for Retail for Q3 2022 was negative $2.8 million, a significant improvement from negative $4.5 million last quarter, while lower than the positive $0.9 million for the same quarter of the prior year. The significant quarter-over-quarter improvement in Adjusted EBITDA was due to an increase in revenue and gross profit and a reduction in SG&A expenses.
• The Company had 90 stores open and in operation at the end of October 29, 2022, compared to 92 stores at the end of Q2 2022 and 97 stores at the end of Q3 fiscal 2021.

Wholesale and Logistics

• The current fiscal quarter and year results include the operations of Open Fields Distribution wholesale business in the province of Saskatchewan and Pineapple Express Delivery, which was acquired on January 21, 2022.
• Wholesale and Logistics revenue in Q3 2022 was $7.9 million, in line with the same quarter of the prior year and a decrease of $0.6 million from Q2 2022.
• Segment gross profit in Q3 2022 decreased to $1.1 million from $1.7 million in the same quarter of prior year. Segment gross profit increased quarter-over-quarter by $0.2 million from $0.9 million in Q2 2022.
• Wholesale and Logistics Adjusted EBITDA was negative $0.1 million in Q3 2022 compared with positive $1.3 million in the same quarter of the prior year. Adjusted EBITDA improved by $0.3 million from negative $0.4 million in the previous quarter as a result of higher gross profit and lower SG&A expenses.
• The year-over-year decline in segment gross profit and Adjusted EBITDA reflects increased cost of sales and launch of Firebird Delivery in the current fiscal quarter.
• Opening of the Open Fields Manitoba cross-docking facility on October 26, 2022 through receipt of its license from the Liquor, Gaming and Cannabis Authority of Manitoba.

Hifyretm Digital Platform

• Digital revenue of $3.0 million in Q3 2022, an increase from $1.9 million in Q2 2022, and a decrease from $3.8 million in the same quarter of the prior year.
• Digital Adjusted EBITDA of $1.4 million increased from $0.6 million in Q2 2022 and decreased from $3.4 million in the prior year comparative period.
• The sequential increase in revenue and Adjusted EBITDA is primarily due to the resumption of data subscription agreements and increased project-based data and analytics work during Q3 2022, which the Company anticipates to continue.
• Additionally, Hifyre began to commercialize the Consumer Insights and Distribution modules to the Hifyre IQ data analytics platform customers and will continue to drive additional commercial efforts towards these products.
• Generation of meaningful recurring revenue from licensing of Hifyre software to dispensaries in the U.S. through the strategic agreement with Fire & Flower US Holdings Inc.
• The year-over-year decline in revenue and Segment Adjusted EBITDA is primarily due to general market conditions for Hifyre customers, but the Company has renewed various recurring revenue agreements and sequentially added project-based work, as evidenced by the quarter-over-quarter improvement in Q3 2022.

Subsequent Operational Highlights Post October 29, 2022

• Appointment of John Chou as Interim Chief Financial Officer on November 21, 2022.
• Expansion of the Alimentation Couche-Tard strategic relationship through the addition of four additional cannabis retail store locations under license on November 7, 2022.
• Entered into an Asset Purchase Agreement on November 7, 2022 to acquire two cannabis retail store locations in Kingston, Ontario from a wholly owned subsidiary of Alimentation Couche-Tard, through the issuance of 804,548 Common Shares and up to additional 804,548 Common Shares upon achievement of certain performance metrics. The closing of the transaction is subject to certain closing conditions including the receipt of regulatory approval.
• Expanded the Company's footprint in the British Columbia market through the opening of a cannabis retail store in Kelowna, and in Manitoba with the opening of a store in Winnipeg.

Adjusted EBITDA

Non-IFRS Measures ? Adjusted EBITDA

"Adjusted EBITDA" is a is a Non-IFRS metric used by management that does not have any standardized meaning prescribed by IFRS and may not be fully comparable to similar measures presented by other companies. Management defines Adjusted EBITDA as the income (loss) for the period, as reported, before income taxes and other expense (income) items such as finance costs, finance income, gains and losses related to derivative liability revaluations and debt extinguishments, and adjusted for share-based compensation, depreciation and amortization, impairment expenses, restructuring charges and acquisitions, foreign exchange differences and strategic initiative professional fees.

Adjusted EBITDA has been calculated differently than in periods prior to Q1 2021, where the Company previously included lease liability cash payments as disclosed in accordance with IFRS 16 "Leases" accounting standards. The updated measure reflects the Company's new approach to analyzing the consolidated operating performance across the business lines. The Company believes the updated definition is an alternative measure to assess performance as it provides meaningful operating results and facilitates period-to-period operating comparisons. As other companies may calculate this non-IFRS measure differently than the Company, this metric may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net income (loss) as an indicator of operating results, or as a substitute for cash flows from operating activities.

Adjusted EBITDA for the second quarter ended October 29, 2022 was negative $2.8 million compared to positive Adjusted EBITDA of $2.1 million for the comparable quarter for 2021 fiscal year.

Webcast & Conference Call

Fire & Flower will host a webcast and conference call with Stéphane Trudel, Chief Executive Officer, and John Chou, Interim Chief Financial Officer and Chris Bolivar, EVP Commercial and Growth at 8:30 a.m. EST on December 13, 2022. The webcast will discuss Fire & Flower's Fiscal 2022 third quarter financial and operational results.

Dial-In Information

Canada dial-in number (Toll Free): 1 833 950 0062
United States (Toll Free): 1 844 200 6205
International: +1 929 526 1599

Access code:  231739

Webcast Sign-Up

https://events.q4inc.com/attendee/402177278

Replay Information (Available until January 3, 2023)

US Toll Free: 1 866 813 9403
Canada:  1 226 828 7578
International: +1 929 458 6194

Replay Code: 152398

Upon completion of the live conference call, a replay of the conference call will be accessible on Fire & Flower's website at https://investors.fireandflower.com/.

Fire & Flower's financial statements and management discussion and analysis for the period are available on Fire & Flower's SEDAR profile at www.sedar.com and on Fire & Flower's website at https://investors.fireandflower.com.

About Fire & Flower 

Fire & Flower is a cannabis consumer retail and technology platform with more than 90 corporate-owned stores in its network. The Company leverages its wholly-owned technology development subsidiary, Hifyre Inc., to continually advance its proprietary retail operations model while also providing additional independent high-margin revenue streams. Fire & Flower guides consumers through the complex world of cannabis through best-in-class retailing while the Hifyre^TM digital and analytics platform empowers retailers to optimize their connections with consumers. The Company's leadership team combines extensive experience in the technology, cannabis and retail industries. 

Through the strategic investment of Alimentation Couche-Tard Inc. (owner of Circle K convenience stores), the Company has set its sights on global expansion as new cannabis markets emerge and is poised to expand into the United States when permitted through its strategic licensing agreement with Fire & Flower U.S. Holdings upon the occurrence of certain changes to the cannabis regulatory regime.

To learn more about Fire & Flower, visit www.fireandflower.com. 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 This news release contains certain forward-looking information within the meaning of applicable Canadian securities laws ("forward-looking statements"). All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "could", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "project" and similar words, including negatives thereof, suggesting future outcomes or that certain events or conditions "may" or "will" occur. These forward-looking statements include statements about the sales of Common Shares under the ATM Program and the use of the net proceeds of the ATM Program. These statements are only predictions.

Forward-looking statements are based on the opinions and estimates of management of Fire & Flower at the date the statements are made based on information then available to Fire & Flower. Various factors and assumptions are applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Forward-looking statements are subject to and involve a number of known and unknown, variables, risks and uncertainties, many of which are beyond the control of Fire & Flower, which may cause Fire & Flower's actual performance and results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors, among other things, include: final regulatory and other approvals  or  consents; fluctuations in general macroeconomic conditions; fluctuations in securities markets; the impact of the COVID-19 pandemic; the  ability of the Company to successfully achieve its business objectives, political and social uncertainties, demand for the Common Shares, market conditions, and the use of the net proceeds of the ATM program.

No assurance can be given that the expectations reflected in forward-looking statements will prove to be correct. Although the forward-looking statements contained in this news release are based upon what management of the Company believes, or believed at the time, to be reasonable assumptions, the Company cannot assure shareholders that actual results will be consistent with such forward-looking statements, as there may be other factors that cause results not to be as anticipated, estimated or intended. Readers should not place undue reliance on the forward-looking statements and information contained in this news release. Additional information regarding risks and uncertainties relating to the Company's business are contained under the headings "Risk Factors" in the Company's Annual Information Form dated April 26, 2022 and "Risks and Uncertainties" in the management discussion and analysis for the thirteen weeks ended October 29, 2022 filed on its issuer profile on SEDAR at www.sedar.com. The forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

SOURCE Fire & Flower Holdings Corp.